The governments of Tanzania, Rwanda and Burundi advertised in July for expressions of interest from qualified local and international infrastructure firms to finance, design, construct, operate and maintain a new 1,661-kilometer standard-gauge railway line linking the three countries to the port of Dar es Salaam, but experts say project implementation must be restructured if it is to attract financing and meet anticipated timelines.
Ottawa-based CPCS Transcom is the project’s transaction advisor and is supporting the three governments to structure the public-private partnership transaction and identify potential partners from the private sector to construct the Dar es Salaam-Isaka-Kigali/Keza-Musongati Railway project.
The EOI was closed in August and a joint coordinating team of the three countries is currently reviewing the submitted documents, before issuing a request for proposals to shortlisted firms at a date that is yet to be confirmed.
Experts told attendees at a transport infrastructure forum in Nairobi in early October that the planned $5-billion to $6-billion modern railway line is likely to fail in attracting adequate financing unless the governments split the project implementation into small phases to woo the private sector instead of going ahead with the undertaking as a single phase project.
“The appetite for rail infrastructure projects in Africa is uncertain and potential funders are more focused in bankability of projects,” said Giles Douglas, managing director of U.S.-based financial advisory firm Rothschild in South Africa. Rothschild is the project’s financial advisor.
“A phased approach is likely to be the most viable option because it reduces the size of the project to manageable amounts and requires stakeholders to be realistic about what is possible,” he told the East Central Africa Rail and Roads Summit organized by Singapore-based Magenta Global in Nairobi in early October.
He said, “Just because Tanzania, Rwanda and Burundi say they need a modern railway line does not necessarily mean it can be funded.”
Douglas said the three governments need to make the project bankable by ensuring a clear economic case through verification of long-term revenue potential by ensuring a secure market for the rail transportation services and “finalizing the optimal operating model and ownership structure and assessing the capital cost of different phases and configurations.”
The railway project involves construction of new standard-gauge (1,435-millimeter) line from Tanzania’s capital and port city of Dar es Salaam to Isaka (970 km) parallel to the existing 100-year-old 1-meter-gauge (1000-mm) line. New lines will be constructed onward from Isaka to Rwanda’s capital Kigali (494 km) and from Keza to Musongati via Gitega in Burundi (197 km).
A project brief by CPCS says the railway line will be built primarily for freight trains with heavy permissible axle loads of 32.4 tons and long train lengths of 2000 m. CPCS said that although passenger trains will also be operated, it may need some government subsidy to make passenger tariffs affordable.
The track structure on the 1,661-km line will consist of ballasted track with heavy rail of 70 kg/m and pre‐stressed concrete sleepers with elastic fasteners. Freight volumes on the new railway are expected to reach a minimum of 8.5 million tonnes/year by 2029 and up to 25 million tonnes/year in the best-case scenario, according to CPCS.
But Douglas said total transport demand along the central corridor is expected to grow by 10.5% per year up to 2030. At least 5% of this demand growth will be for rail transport.
He said Tanzania, Rwanda and Burundi are hinging their hopes of increased freight on expectation the rail tariffs will be low and no major investment will be done on road transport—now said to experience reduced maintenance and safety—and on the likelihood of increased disincentives for road use, such as taxes and tolls.
CPCS East Africa Vice President Derrick Lichti said the new rail project “is big by world standards, let alone sub-Saharan Africa.”
He said the project is likely to take too long to complete because “phase one of the feasibility study commenced in 2007, and the EOI stage has only just been completed.”
“This project can only be financed through bilateral or multilateral lending institutions, but it would be difficult for the private sector or banks to fund it,” said Anil Bhandari, former World Bank advisor for sub-Saharan infrastructure.
“It would be best if the three countries constructed the rail in small phases, because even for an institution like the World Bank, the project has to be highly viable to attract funding as a single-phase project,” he said.
Bhandari, now president and infrastructure specialist of the Nairobi-based AB International Enterprises LLC, said the project may not be viable in the short or medium term because of low freight volumes.
He said priority should have been given the World Bank-funded rehabilitation of the existing 970-km long, 1-m-gauge rail line between Dar es Salaam and Isaka “and ensure it handles a minimum of 10 tonnes/year before considering the standard gauge option and extending the rail to Rwanda and Burundi.”
The implementing agency for that rehabilitation project, the Reli Assets Holding Co., is in the early stages of that project, having recently advertised for a project coordinator.
Constructing a new railway line to link Rwanda and Burundi with Tanzania at Isaka may sound politically popular, he said, but “economically, the distance is around 500 km, which can be very well served with a good road network, because already there are good intermodal facilities at Isaka.”
“Unless the mineral industry in the three countries generate at least 10 million tons/year, it is more economical and viable to transport cargo by road for distances that are up to 550 km.”
“The other option is to pursue government-to-government financing such as [from] China, which can give them funds in exchange for being allowed to build the railway project and then repay the loan in 50 years, which I think is not the best use of the money, but probably that is the only way the governments can hope to finance the project without the input of the private sector.”